Many shippers don’t achieve the cost savings they expect from their freight bid exercises. This can happen despite the time, energy and costs that go into these projects. Based on our work with shippers over the past twelve years, these are the main reasons why this happens.
A Failure to Provide Full Disclosure of Requirements and Expectations
As a prelude to the execution of a freight bid, shippers are required to gather and document the scope of their freight transportation requirements. For carriers to bid properly on a shipper’s freight, this goes well beyond volumes, lanes and transit times. Carriers need to understand everything about the pick-up, linehaul and delivery operations. Unfortunately, this does not always happen. The omission of certain requirements can lead to erroneous carrier selections and turmoil after the bid has been completed and the freight has been awarded. Here is one example.
Some shippers require early morning (i.e. 7:30 AM) deliveries. Not all LTL carriers are able to supply this service in all locations on a consistent basis. If carriers are not informed of this requirement in the RFP and then expected to meet this requirement in certain locations after the bid has been awarded, this can lead to service failures and pressure to bring back the incumbent (s).
A Failure to Gain Buy-In and Support from all Divisions and Sister Companies
In many companies, the various divisions in a company have a fair amount of autonomy and authority with respect to freight transportation. This attitude can extend from the Division GM down to the Logistics Manager. There is often a belief that the freight gurus in other divisions and/or head office and/or the consultants they hire, don’t know the carriers and service requirements, in their areas, as well as they do. In some cases, this may be true.
Prior to the launch of a freight bid, there is a requirement for the participating divisions to “join hands” and commit to share information, participate in the evaluation process and pledge to implement the results. In many cases, this simply doesn’t happen. If the carriers have been given insufficient information upon which to submit their bids, or the local manager has close ties to one or more incumbents, this may inhibit and/or undermine the success of the project. For companies that arrange an opening kick-off conference call among the divisions, without follow-up calls during the exercise, this can often lead to failure. We have observed divisions of a company totally reject the results of a bid at the end and maintain the status quo.
A Failure to Understand Shipper / Carrier Relationships
Don’t ever underestimate the power of interpersonal relationships. The son of the shipper may be on the same little league baseball team as the son of a carrier’s driver. The parents can form close bonds.
Don’t underestimate the power of tickets to an NFL football game or NBA basketball game. These are powerful incentives to disregard a routing guide and tender loads to a carrier well down the pecking order.
Jumping to Full Awards before Offering Carriers Trial Shipments
Any “new” carriers that are awarded business have to come up a learning curve. It is not realistic to expect them to perform as well as the incumbent on day 1. There is a requirement to meet with key personnel at the new carriers and educate them on the nuances of handling your company’s freight. To reduce risk, it often makes sense to provide new carriers with trial shipments and guide them to success. Since change is threatening to some people, there may be managers in your company hoping the new carrier will fail. You owe it to your company and your carriers to maximize their opportunities for success.
A Failure to Monitor Routing Guide Compliance
In order to have routing guide compliance, the document must be prepared, signed-off by all of the parties that participated in the project and distributed to everyone who uses this information. There needs to be a weekly and monthly report prepared from a company’s TMS system or other means to track exceptions and highlight non-compliance. Compliance goals need to set and performance measured. While 100 percent is likely not realistic or attainable, a meaningful target (i.e. 75%) should be set. This information must be distributed to all levels of management and non-compliance must be challenged. Improvements must be achieved and if not, the leadership team should engage in fixing specific problem divisions and branches.
Summary
For companies that have not conducted a freight bid for the past three or more years, this exercise can produce some significant savings. Freight costs often represent between 2 and 10 percent of a company's revenues.
The economy has slowed. As energy prices have dropped, so have fuel surcharges. There are new players (i.e. 3PLTL logistics companies) that may have entered the market over the past few years. There is not much value in going through one of these exercises if you don’t maximize your opportunities for success.
If you need assistance in conducting a freight bid, contact me at dan@dantranscon.com. To stay up to date on Best Practices in Freight Management, follow me on Twitter @DanGoodwill, join the Freight Management Best Practices group on LinkedIn and subscribe to Dan’s Transportation Newspaper (http://paper.li/DanGoodwill/1342211466).